Final Word from Wednesday, June 20, 2012

The two biggest Czech news stories today are the layoffs at the TPCA car factory in Kolín and the huge shortfall in VAT receipts. Taken together, they're reason for the cabinet to scrap its plan to raise the two VAT rates by 1 percentage point next year to 15% and 21%. Czech exporters are starting to see their sales deteriorate, and Czech consumers are responding to the worsening economic situation by sharply reduc- ing their spending. As we've said before, raising VAT in such a situation is a fatal mistake. The latest numbers show that Miroslav Kalousek has utterly failed (again) to anticipate the impact of his policies. We propose LOWERING both VAT rates to a level that stimulates sales, supports employment, and minimizes the drop-off in tax receipts. Our back-of-the-envelope calculation produces rates of 7% and 15%. But of course for this to work, the politicians would also need to quit stealing so much.

Glossary of difficult words

layoff - a discharge, esp. temporarily, of a worker or workers; firing;

to scrap - to abolish or cancel something;

to deteriorate - to become progressively worse;

drop-off - decline, reduction, drop;

back-of-the-envelope calculation - a calculation worked out quickly, usually without the benefit of all the information needed for a full and proper calculation.


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